THE chances of an internal candidate being appointed to head Telstra received a healthy boost this week after the federal Government invited the telco to be a participant in its new $43billion network, analysts say.

Telstra chairman Donald McGauchie said the company looked forward “to having constructive discussions with the Government at the earliest opportunity” when it was announced Telstra had been readmitted to the process it was spectacularly dumped from last year.

But if Telstra is serious about being readmitted into the Government’s NBN plans, it will need a conciliatory voice to smooth the tumultuous waters that have stirred between the two entities while they battled over regulatory and broadband issues.

Analysts are tipping that the safest bet would be to appoint an experienced internal candidate to lead the way back to theGovernment’s negotiation tables.

“Going offshore for a candidate was always going to be difficult given the uncertainty of the NBN and the weak Aussie dollar, but now that Telstra is back in discussions with the Government they need an internal voice of reason to help smooth the waters,” one analyst said.

Last week The Australian reported that headhunting firm Egon Zehnder and Telstra’s board were surging ahead in their search for outgoing chief executive Sol Trujillo’s replacement, and have whittled down the shortlist of contenders to fewer than 10.

Telstra has confirmed that a string of internal contenders are already out of the running, including Mr McGauchie and newly appointed marketing chief Kate McKenzie.

External overseas candidates such as Briton Gavin Patterson, chief executive of BT’s $18.5 billion retail divisions, have also been ruled out.

Whether or not Telstra’s readmittance into the NBN will pave the way for an internal candidate to take the reins from departing chief executive Sol Trujillo, analysts agree that the battle for the top spot will be fought between two candidates; Telstra chief financial officer John Stanhope and Telstra Enterprise and Government boss David Thodey.

So far, Mr Stanhope is the only executive to publicly put his hand up for the role, saying if he were to get the top job his first task would be to mend relationships with the telco’s various government and business customers.

Body: Mr Stanhope’s appointment is, however, a long way from being a foregone conclusion.

Telstra insiders say his tough staff management style has undermined a lot of internal support. Mr Thodey has widespread support from staff.

Among analysts it seems Mr Stanhope has firmed as the favourite.

“Stanhope already has good relations with government sectors, so now more than ever it’s looking like Telstra will go with an internal chief executive,” one analyst said. “Stanhope will be the new chief executive by default.”

Much is at stake for the telco and the new chief executive. Not only is there the possibility of playing a big part in Australia’s largest ever infrastructure project, there’s also the chance that Telstra’s network, retail and wholesale arms could be functionally separated by regulatory reform.

“Appointing an external firebrand chief would be the worst thing that Telstra could do right now,” one analyst said.

“They need someone to deliver the 2010 financial year targets that they have promised to the market, and it’s very difficult to get someone else to come in and take accountability for that.”

Mitchell Bingemann